Interview with Carl Hansen, Chief Executive, Electricity Authority
30 March 2017
Utilities Disputes interviewed Carl Hansen, Chief Executive of the Electricity Authority since it was established in November 2010. During Carl’s tenure, the Authority has focused on enhancing competition across the market and adopting effective mechanisms to achieve efficient levels of reliability of supply.
We asked Carl about the EA's changing role in a diverse market, the reason behind the emphasis on switching, the role of Utilities Disputes in the electricity sector and the EA's future plans.
The whole energy industry is changing. How is the EA’s role changing to reflect the evolving marketplace?
The industry is moving away from a bulk supply model that has been in place for over 100 years to a new, more dispersed model where technology allows small-scale businesses to be more active in the market.
- Engaging with more parties
In terms of our role, we now need to engage with a much wider range of parties. There are new entrants and many of them are very time-poor. They are entrepreneurs and have little regard for established processes and are not necessarily familiar with regulatory requirements. That is something we’re very conscious of.
We have to stretch ourselves so new entrants can make the best contribution they can. Part of that is getting the new advisory group—the Innovation and Participation Advisory Group, called IPAG—up and running. The purpose of IPAG is to make recommendations to the Authority Board on removing barriers to evolving technology and new business models.
- Helping innvation
Another way the Authority is changing is that most of our market design projects no longer fit as neatly into one basket or another within the supply chain. We’ve adopted a matrix-like structure in our market design group for undertaking projects.
The team is motivated to do great things for consumers. We’re focused on trying to get the best regulatory arrangements for innovation in the electricity world and we think we’ve got a great platform—in the form of a well-functioning competitive market—to move in that direction.
- Working faster and smarter
The third area of change is that many technologies are advancing quite rapidly and the pricing of those technologies is changing fast, so we’ve got to work faster and smarter and take a broader focus.
In the faster category, we’re racing against time to remove unwarranted barriers to new types of participants and new types of technologies so that the market can flourish and allow consumers to get what they want as soon as possible.
And we’re working smarter. We’re adopting new ways of consulting such as IPAG and becoming more digital in our consulting. We’re also undertaking a broader range of work. Our market performance group is overseeing the enhancement of our market systems so we can cope with thousands of participants rather than around the hundreds we have now. We’ve got to connect data on a wider range of firms and technologies to inform ourselves about what’s happening in the market and to undertake our compliance monitoring. There are also new tensions arising as well – for example, between the monopoly lines businesses and the competitive side of the market.
So although we’ve got a lot of work to do over the next few years, my personal view is that the rule-making side of the Authority in the long term will shrink once we get over the immediate mountain of work. We’ll then be able to focus more on compliance-type activities. I think the technology change the industry is facing could lead us to a position where the Authority is less needed, which will be fantastic.
Why is it so important for people to know about switching providers?
When customers shop around for better deals, they’re helping themselves and the market because they’re adding more competitive pressure to the market. That is really important because competition drives businesses to find new ways of delivering what customers want. It’s this innovation that is the huge value gain to the consumers. If you look at things over a decade or more, that’s where the real value gains come. Consumers shopping around drives competition and the competition drives innovation. That is the real value to consumers.
When we set up the Authority in November 2010 there were 12 electricity retailers (that is, just looking at the parent companies rather than their subsidiaries or brands). We now have more than 25 operating in NZ and the diversity of services and tariffs is vastly more than what existed in 2010.
What should Utilities Disputes’ role be in the regulation of the electricity market?
Utilities Disputes is a critical piece of the puzzle in that it provides consumers with confidence that their issues will be dealt with fairly and at no cost. More importantly, you provide an avenue for MPs to direct their constituents. They’ve got constituents coming to them and complaining about problems with electricity and gas. Utilities Disputes is an avenue, an agency to which they can direct people. Utilities Disputes is really good at de-politicizing the sector. The professional expertise you bring enables the sector to work really well. In terms of how Utilities Disputes interfaces with the Electricity Authority, it gives us space to do our job as a regulator because it means those disputes don’t get caught up with our rule-making and enforcement activities.
Utilities Disputes is a high performing organisation; disputes get resolved and removed from the system. Things that are bumpy, that could be a molehill turning into a mountain, get resolved by your organisation. This allows regulators to focus on policy issues and really bring our own value. I think the two functions work very well together because at the end of the day, both organisations are here to serve consumers. They get the practical, pragmatic and case-specific resolution from Utilities Disputes and we’re the market-wide monitoring and rule-making organisation.
What’s coming up in the future that you want providers to know about?
Over the next four years, we’re really focusing on removing unwarranted barriers to new technologies and new business models for both small and medium-sized parties. We’re aware that consumers perhaps want to produce electricity themselves, to store electricity and want to sell electricity to each other. These are new opportunities and we’re wanting to ensure the regulatory arrangements don’t impose any unwarranted barriers. That’s number one.
Our number two priority arises from the fact that the electricity sector is really about risk. In fact it’s actually much more about risk than it is about electrons because a lot of moving parts have to work well together. Demand and supply are continuously changing—sometimes in big steps—so we’re putting a big emphasis on getting better price signals in the market about future supply risks and better options for people to address those risks.
The third element is around distribution and transmission pricing and making sure it is much more fit-for-purpose. This stretches into the world of new technology and also stretches into pricing in the spot electricity market. We’ve got a major project underway looking at how we can make spot market pricing much more advanced so it will be of greater use to the new groups of people who may well want to participate in the market.